A life estate commonly involves ownership of a home.
If you own a home, a life estate could be a possibility for you.
It allows you to share an interest and ownership with a child.
Things should be simple as long as it involves family, right?
According to a recent NJ.com article titled “What a 'life estate' means for your home,” you need to put thought into this estate planning strategy.
The article discusses how this estate planning strategy works.
In essence, a life estate gives the holder the legal right to possession of real estate.
There is the life estate holder and the owner of the remainder interest.
Typically the life estate owner is a parent and the owner of the remainder trust is a child.
Right of possession belongs to the life estate holder while alive.
What does this mean?
The life estate owner can either live on the property or rent it and keep the money.
This person also is responsible for upkeep and maintenance.
What happens if the life estate owner dies?
The life estate dies with this person.
It cannot be transferred.
What if you want to sell?
Both the owner of the remainder and the life estate holder must agree to sell.
They both have an interest in the property and the buyer will want to take full possession of the property.
How is interest in the property determined?
The IRS has a table to figure the value of the interest of each party.
For the life estate holder it tends to be an inverse relationship to age.
As this individual ages, his or her share of the ownership interest will decrease.
These tables will determine how much money from a sale goes to each party.
What if the home has increased in value?
A capital gains tax may be owed.
Taxes may be more favorable for the life estate owner.
This person could be exempt from capital gains up to $250,000, if he or she has lived in the home for two of the last five years.
The remainder interest holder cannot receive this exemption.
The home was not his or her personal residence.
Although there is much to consider, working with an experienced estate planning attorney can help you set up both parties for success.
So, how do you find an "experienced" estate planning attorney?
First, ask around. Friends, family and other professional advisors are trustworthy sources.
Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "Estate Planning Anytown MoKan").
Third, either way, verify! Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.
In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help in other areas of law or for matters in jurisdictions outside Kansas or Missouri.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: NJ.com (July 27, 2017) “What a 'life estate' means for your home”